In a not-unexpected development, the Lago Agrio plaintiffs won the latest round in Ecuador’s courts. An appellate court rejected Chevron’s request to be excused from the ordinary requirement of posting a bond in order to suspend the operation of the lower court’s $18 billion judgment while it pursues its appeal. This is not a surprise, since, as I understand it at least, Ecuadoran law provides no exception to the bond requirement. I am told that Chevron’s opportunity to post the bond under Ecuadoran procedural law has now expired.
The most interesting aspect of the new appellate decision is the court’s discussion of the recent arbitral decision reaffirming Ecuador’s obligation, under the US/Ecuador bilateral investment treaty, to suspend operation of the judgment. According to a translation provided by the plaintiffs’ advocates, the judges said:
A simple arbitration award, although it may bind Ecuador, cannot obligate Ecuador’s judges to violate the human rights of our citizens. That would not only run counter to the rights guaranteed by our Constitution, but would also violate the most important international obligations assumed by Ecuador in matters of human rights
I have emphasized what I think is the key language in the decision, which illustrates the heart of the problem. The Ecuadoran courts have now said that the arbitrators’ interim awards cannot compel the Ecuadoran courts to suspend operation of the judgment. But the judges seem to recognize that the arbitral awards may bind Ecuador itself under international law. So Ecuador is in the same position as the United States was in the Medellín case: obligated by international law to take certain actions, but unable, under its internal law, to take them.
The difference between the two cases is that the Ecuadoran plaintiffs are likely going to seek to enforce the Ecuadoran judgment in a third country (there was no similar issue in Medellín, a US death penalty case). So the $18 billion question is what the courts of a third country will do, assuming the Ecuadoran judgment is entitled to recognition and enforcement under that country’s law. Will it recognize the arbitral awards, as the New York Convention most likely requires? If so, what force will the recognition have? Will the courts of the third country find that they are required, by the New York Convention, to suspend enforcement of the Ecuadoran judgment? Or will they instead enforce the underlying judgment on the theory that the Ecuadoran plaintiffs themselves were not parties to the arbitration and the award can have no preclusive effect as to them? I hope to share some thoughts on this in the coming days.
Photo credit: Caroline Bennett / Rainforest Action Network
The case of the day, Greatship (India) Ltd. v. Marine Logistics Solutions, LLC (S.D.N.Y. 2012), is another example of what I think is an unfortunate trend in the cases: application of ordinary notions of personal jurisdiction in recognition and enforcement proceedings.
Greatship was the owner of two Indian-flagged anchor handling tug supply vessels, the Greatship Amrita and the Greatship Anjali. Marsol was an offshore logistics company registered in Dubai. Marsol chartered the two ships. The parties later agreed to early re-delivery of the ships and entered into settlement agreements that provided for Marsol to pay Greatship more than $2 million for outstanding time charter hire and compensation for the early re-delivery. The settlement agreement provided or arbitration in London in the event of a dispute.
Greatship alleged that Marsol failed to pay and it commenced an arbitration. The arbitrators awarded Gretship more than $2.1 million in damages, which Marsol failed to pay. Greatship then sought recognition and enforcement of the award in New York. Marsol moved to dismiss for lack of personal jurisdiction. The court agreed, finding that Marsol lacked sufficient minimum contacts with New York, or even the United States, to justify jurisdiction under the due process clause.
The court didn’t really discuss the quasi in rem issue, but it seems to me that any court in a state where the losing party in an arbitration (or the judgment debtor) has property that can be taken in satisfaction of the judgment or the award should have jurisdiction to the extent of the property. The case has already been litigated and decided. The only issue is collection. So I don’t see why it should be necessary, to satisfy the constitution, that there be a connection between the property and the underlying claim. The losing party has a connection with the state at least insofar as he or she keeps property there. This is particularly so in the arbitration context because neither lack of personal jurisdiction nor related defenses such as venue or forum non conveniens is an expressly permitted ground for refusing recognition and enforcement under the New York Convention. I’ve posted on this a few times, but I’d point readers to the discussion of the Constellation Energy case, which has a link to a relevant report from the International Commercial Disputes Commitee of the Association of the Bar of the City of New York that is well worth reading.
While our attention has been focused over the past few days on developments in the Second Circuit, there have been developments in the BIT arbitration between Chevron and Ecuador pending in the Hague. Back in February 2011, the tribunal, though it had not then ruled on its jurisdiction, issued a procedural order under Article 26 of the UNCITRAL Rules requiring Ecuador:
to take all measures at its disposal to suspend or cause to be suspended the enforcement or recognition within and without Ecuador of any judgment against [Chevron] in the Lago Agrio Case.
At the time of the order, the tribunal noted that it could later decide to confirm its order “in the form of an interim award under Article 26 and 32 of the UNCITRAL Rules.” After the Ecuadoran appellate decision affirming the trial court’s judgment against Chevron, Chevron requested that the tribunal convert the procedural order into an interim award. Chevron argued that Ecuador had not complied with the earlier order. Of particular interest, Chevron argued that Ecuador had failed to take steps to relieve Chevron from requirement of posting a bond in order to suspend operation of the judgment during its appeal to Ecuador’s highest appellate court and that Ecuador had failed to enjoin “the Lago Agrio Plaintiffs, the Amazon Defense Front, and any trusts established either pursuant to the Judgment or by agreement of the Plaintiffs or their lawyers and representatives, from seeking to recognize or enforce the Judgment anywhere in the world, by the appropriate Government branch or organ.”
Following Chevron’s request, the tribunal issued its earlier procedural order in the form of an interim award.
I haven’t seen Ecuador’s brief, but I imagine one of its main positions has to be that on separation of powers grounds the Ecuadoran government cannot compel the Ecuadoran courts to take the kind of measures Chevron is seeking. Chevron, on the other hand, will have pointed out that as a matter of international law Ecuador is responsible for all branches of its government.
I don’t think Chevron would have asked to have the order converted into an interim award for no purpose, so I think we should be on the lookout for attempts by Chevron to obtain recognition and enforcement of the award in the United States or elsewhere under the New York Convention. It’s not exactly clear, though, what recognition and enforcement of this award would look like. The award essentially orders Ecuador to take governmental action in Ecuador, and it’s not really clear to me what a foreign court could do to compel Ecuador directly. Perhaps Chevron could seek to tie up Ecuador’s assets in order to compel compliance? Pass the popcorn!
Photo Credit: International Court of Justice